TheChek News Flow

Scientific breakthrough gives new hope to building quantum computers

Research from Google on ‘error correction’ could help create a working full-scale system this decade

One of the biggest remaining technical hurdles in the race to build practical quantum computers has been cleared, according to experts in the field, potentially opening the way for the first full-scale systems by the end of this decade.

The latest sign of the growing optimism in the decades-long pursuit of practical computers based on the principles of quantum mechanics follows a claim by Google that it had passed an important milestone in overcoming the inherent instability of quantum systems. 

The findings have been attracting attention in the quantum computing world since they were first published informally in August. On Monday, they appeared in the peer-reviewed journal Nature.

Google has also released details of the new, more powerful quantum chip it had built to carry out its demonstration, and which it said would help it scale up its existing technology to reach practical usefulness.

Experts in the field compared Google’s achievement to another scientific milestone, the first man-made nuclear chain reaction in 1942. That breakthrough had also long been predicted in theory, but it took steady advances in equipment over many years to make it a practical demonstration possible.

“This was theoretically proposed back in the 90s,” William Oliver, a physics professor at Massachusetts Institute of Technology, said of Google’s quantum demonstration. “We’ve been waiting for this result for many years.”

“It often takes decades for engineering to catch up with the theory, and that’s what we’re seeing here,” said Scott Aaronson, a computer science professor at the University of Texas at Austin.

Since the idea of quantum computers was first proposed, one of the greatest barriers has been building systems that are stable enough to handle large-scale computing operations.

They rely on quantum effects such as superposition, where particles exist in more than one state at the same time, and entanglement, where particles in a quantum state interact with each other. But the quantum bits, or qubits, on which the systems are built hold their quantum states for only tiny fractions of a second, meaning that any information they hold is quickly lost.

The more qubits involved in a calculation and the more computing operations performed, the greater the “noise” that creeps in as errors compound. Scientists have long hoped to counter this by using a technique known as error correction, which involves encoding the same information in more than one qubit so that the system as a whole retains enough information to carry out a coherent calculation, even as individual qubits “decohere”.

For error correction to work, however, the individual qubits still need to be of high enough quality to make their combined output useful, rather than degenerating into “noise”.

In their paper in Nature, Google’s researchers said they had passed this important threshold for the first time. As they moved from a 3x3 grid of qubits to 5x5 and 7x7, the incidence of errors had dropped by a factor of two at each step, they said.

Google reported early last year that it had taken the first, tentative step towards effective error correction. But its latest findings amount to a far more robust proof that it can overcome the system’s inherent instability as it scales up the technology to the thousands of qubits that will be needed to carry out useful computations, said Julian Kelly, director of quantum hardware at Google.

The next steps would be to reduce the error rate of its interconnected groupings of qubits further and then to show it can link together more than one of these collections of qubits to perform useful computing operations, said Hartmut Neven, head of quantum at Google.

The advances in error correction have come from steady improvements in hardware. In particular, Google said that a switch to manufacturing qubits in its own facilities had brought a step-change in quality. The new qubits maintained their quantum states for nearly 100 microseconds, or one ten thousandth of a second, the company said — a tiny amount of time, but still five times better than the performance of its previous hardware.

Besides greater stability, bringing new production techniques and larger-scale manufacturing to the field also promises to bring down costs. Google is aiming to cut the cost of components by a factor of 10 by the end of the decade, putting the cost of a fully functional quantum system at that point at around $1bn, Neven said.

Some rivals said that important design considerations could still affect progress and might present problems along the way.

IBM, which is racing Google to build the first full-scale, fault tolerant quantum system, has questioned the practicality of the type of code that Google is using to handle error correction. Known as surface code, this involves coordinating information across a large, two-dimensional grid of qubits.

Jay Gambetta, head of quantum computing at IBM, predicted that this type of code would require Google to build systems with billions of qubits to perform a practical computation. IBM had switched to a different type of more modular code that would work with fewer qubits, he said.

However, different design decisions bring their own challenges The IBM technique involves laying out the qubits in a three-dimensional pattern rather than a flat grid, requiring a new type of connector that IBM said it hopes to produce by 2026.

Neven at Google said the company believed the techniques it had demonstrated in its latest research showed that it could reach practical scale, and that it would need about 1mn qubits to produce a full-scale system.

UniCredit will need to pay up for Italy’s BPM

While Crédit Agricole’s move to bulk up suggests UniCredit has a tougher negotiation on its hands, there may be a silver lining too

UniCredit was already playing a complex chess game, with its bid for Italy’s Banco BPM and interest in Germany’s Commerzbank. Now that French rival Crédit Agricole has raised its stake in BPM to 15 per cent, acquisitive chief executive Andrea Orcel has an even bigger challenge. He can still get his hands on the €11.6bn bank — but will have to pay up to do so. 

Crédit Agricole isn’t interested in countering UniCredit’s bid outright. And a 15 per cent stake, comprising its existing 9.9 per cent plus a further 5 per cent amassed through derivatives, does not constitute a blocking minority. Yet it still puts the French bank in a better position to protect its own interests — and potentially help BPM extract more value out of UniCredit.

Usefully for BPM, which has rejected UniCredit’s initial bid, Crédit Agricole may be supportive of the lender’s standalone strategy — whether that entails remaining a mid-sized bank or potentially buying Italy’s Monte dei Paschi di Siena, in which it has a stake. Crédit Agricole has consumer finance and insurance joint ventures with BPM, as Barclays analyst Flora Bocahut points out. Safeguarding such agreements, or even extending them to MPS, would be beneficial.

This is not a bad position from which to explore negotiations with UniCredit. On this front, too, there are lots of things Crédit Agricole might want to leverage its bargaining chip for. As well as its partnerships with BPM, the French bank sells investment products from its subsidiary Amundi through UniCredit. This agreement expires in 2027, but Crédit Agricole may want to prolong it.

Whatever Crédit Agricole might want by way of business arrangements, as a shareholder it should also want a better offer price from UniCredit. When UniCredit launched its all-share bid at the end of November, it was broadly in line with where BPM was trading. The smaller bank’s outperformance over the past two weeks means its shares now trade at a 12 per cent premium to the offer price. 

While Crédit Agricole’s move to bulk up suggests UniCredit has a tougher negotiation on its hands, there may be a silver lining too. The Italian government — which quite liked the idea of BPM buying MPS to create a third national bank — has blown negative rhetoric over Orcel’s disruptive bid. With Crédit Agricole now set to wield greater influence on any BPM-led entity, politicians may find it expedient to soften their stance.

IG Metall chair Christiane Benner addresses thousands of VW workers striking over planned closure of several plants

The head of Germany’s most powerful trade union has called on Berlin to drop its cap on new borrowing to safeguard the future of Europe’s largest economy.

IG Metall chair Christiane Benner said the country should follow the example of the US and China, which are heavily supporting their domestic industries, meaning the borrowing limit had to “stop — immediately, not after the elections”.

Benner’s warning came as a wave of recently announced industrial job cuts set a grim backdrop to the early stages of election campaigning, following the collapse of Chancellor Olaf Scholz’s three-way coalition amid the country’s economic malaise.

Germany’s debt limits, which bar Berlin from borrowing more than 0.35 per cent of GDP in any fiscal year, scuppered planned investments in the country’s green transition last year. It will be a hotly contested topic ahead of elections in February.

The union leader on Monday addressed tens of thousands of striking Volkswagen workers who had walked out for a second time in a month to protest against executives’ plans to close several plants in Germany amid a drop in sales.

Europe’s largest carmaker has been hit hard by slowing demand and growing competition in China, its most profitable market, where the market share of its flagship brand has nearly halved in just five years.

The situation is not much better in its home region, where annual sales of new cars have fallen by roughly 2mn a year over the same time period, as consumers have grappled with higher costs of living.

VW workers across all shifts on Monday walked out for four hours — twice as long as the walkouts last week — as IG Metall and VW executives kick off the fourth round of negotiations over planned cost cuts.

Worker representatives last month offered to forgo €1.5bn in future pay rises if executives at the German company agreed to rein in bonuses, curtail dividends and — most importantly — cancel plans to close factories.

But VW’s lead negotiator Arne Meiswinkel on Monday said the company had concluded that “the counterproposal is not sufficient for a sustainable solution” and that VW “must reduce its excess capacity”.

IG Metall and VW’s labour leader Daniela Cavallo reiterated that workers would expand strike action unless the company agreed to scrap its historic proposal to shut factories during Monday’s negotiation.

Underscoring the gloomy outlook for the German automotive industry, tyre and automotive component maker Continental on Monday confirmed plans to spin off its automotive division.

The unit, which with its €20.3bn in annual sales and roughly 100,000 employees makes up half of Continental, has announced tens of thousands of job cuts in recent years, due to lower demand and growing costs associated with the transition to electric vehicles. Continental said it planned to spin off the division before the end of 2025.

High supply could mean a risk of temporary volatility in bonds

Government bond supply in the eurozone will remain at very high levels in 2025 but analysts expect ample demand from investors seeking decent yields and safe-haven assets.

Analysts expect gross bond supply across the eurozone’s 11 largest issuers for 2025 will total roughly 1.28 trillion euros ($1.353 trillion). This includes new bond issuance to finance budget deficits and redemptions, or the renewal of maturing bonds.

Although marginally below 2024’s level, bond issuance will remain extremely high by historical standards due to the need for extra spending in previous years related to the Covid pandemic and Russia’s invasion of Ukraine.

High supply could mean a risk of temporary volatility in bonds, leading to higher yields. Overall, however, appetite to buy eurozone bonds is expected to be sufficient.

Yields remain relatively high, the European Central Bank is expected to cut interest rates, and investors still want to buy safe assets due to geopolitical uncertainty.

“For investors searching for yields, European bonds are appealing given risks of secular [long-term] stagnation in the continent,” said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management.

French government bonds could be an exception, however, given political instability in the country and uncertainty over the budget.

Edmond de Rothschild cut all exposure to French government bonds even before the recent collapse of the government. It otherwise considers that European government bonds offer good value.

Antonio Cavarero, head of investment at Generali Asset Management, said higher rates and cheaper bonds will attract more buyers, including retail investors.

The market is “aware of the incoming supply” and bond prices already largely reflect this, he said.

In line with historical patterns, issuance is expected to be highest at the beginning of the year, when countries start their annual funding programs, and gradually slow as the year progresses.

Supply pressures might emerge in times when large issuance volumes coincide, potentially causing lower prices and higher yields but this is only expected to be temporary.

“There could be some occasions for local noisy volatility and underperformance that, however, should remain relatively limited,” Cavarero said.

Investors have ample liquidity to put at work, he said. Governments have also been refining their funding strategies for years, diversifying their funding beyond conventional bonds to other instruments, including treasury bills, or relying more on retail investors.

Demand for bonds is expected to be strong enough even as the European Central Bank reduces its balance sheet through quantitative tightening. From the start of 2025, the central bank will no longer reinvest maturing bonds from previous bond-buying programs.

Elevated gross government bond supply is nothing new. However, a spike in what is known as ‘net-net’ government bond issuance to a record high presents a challenge.

This is the amount of bond supply for which new investors have to be sought. Net issuance is the volume of bond supply minus redemptions and net-net factors in the ECB’s quantitative tightening policy.

Erjon Satko, rates strategist at Bank of America, expects ‘net-net’ supply to reach a new record for the eurozone government bond market of around 670 billion euros. He expects this will be absorbed, as long as rates volatility stabilizes further, especially given the eurozone’s high savings rates.

John Hardy, Saxo’s chief macro strategist, said that in the unlikely event that the eurozone bond market turns unstable he would expect the ECB to find a way to stabilize the market.

“I just don’t think any major disruptive situation will happen. If there is any sign of tensions, some facility will be invented,” he said.

Deal, valued at $6.7 billion including debt, is slated to close in mid-2025.

Novolex, a packaging company backed by Apollo Global Management, struck a deal to buy publicly traded Pactiv Evergreen for around $3.22 billion

The companies Monday said Novolex will pay $18 a share in cash for Pactiv, a nearly 23% premium to Friday’s closing price of $14.66 for the Lake Forest, Ill., company and some 32% above the company’s closing price Dec. 2, before published reports said Apollo was exploring a takeover.

Pactiv and Novolex said the deal, valued at $6.7 billion including debt, is slated to close in mid-2025.

New York-based Apollo acquired a majority stake in Novolex in 2022 from fellow private-equity firm Carlyle Group. Carlyle retained a minority stake in the company, according to a press release issued at the time.

Pactiv and Novolex said Canadian pension giant Canada Pension Plan Investment Board will contribute about $1 billion to the deal and will become a significant minority shareholder in the combined company.

New Zealand billionaire Graeme Hart owns more than 75% of Pactiv through Packaging Finance Ltd., which has approved the transaction, Pactiv and Novolex said.

Financial regulator finds suspicious stock market moves took place before 30% of takeover announcements

Indications of potential insider trading have declined to five-year lows even though suspicious stock market moves still occurred before 30 per cent of UK takeover announcements last year, the financial watchdog said on Monday.

The drop in suspicious market activity came as the Financial Conduct Authority this year secured its first two convictions for insider trading since 2019 following a crackdown by the regulator.

The FCA said it detected abnormal trading volumes of shares and derivatives ahead of 5.6 per cent of price-sensitive announcements in 2023, the lowest since data collection began in 2018.

Potentially anomalous trading before market-sensitive announcements also fell to its lowest on record, dropping to 3.3 per cent last year. 

But suspect stock market moves took place before 30.3 per cent of takeovers involving UK-listed companies, down from 35.3 per cent a year earlier. The figures reflect a change in the FCA’s methodology to include intraday trading and adjust for market volatility.

Claire Cross, a former FCA official who is now a partner at law firm Corker Binning, said the regulator had “continued to make a concerted effort to crack down on insider dealing” and this “may well have deterred some individuals who might otherwise have committed this form of market abuse”.

The data came after the FCA secured a guilty verdict for insider trading and fraud against a Goldman Sachs analyst who was given a 22-month prison sentence in February, after his brother, a former Clifford Chance lawyer, was acquitted in the same case.

The watchdog also successfully prosecuted a manager of plastic manufacturer RPC in March for using inside information to trade in its shares ahead of the acquisition of a rival.

In October, the FCA said it had charged two brothers, Matthew West, 43 and Nikolas West, 45, with conspiracy to deal in the shares of four companies while benefiting from inside information.

While the data seemed to be heading in the right direction, Cross said the decline in suspicious activity could indicate that insider dealers were becoming more sophisticated. 

“They are aware of what is likely to catch the FCA’s attention and tailor their trading accordingly,” she said. “As such they are less likely to be trading in a fashion that is captured by the methodology utilised to obtain these results.”